China’s finance ministry announced that, effective April 23, it will decrease new electric vehicle (NEV) subsidies by 10%. The world’s biggest car market, China sold more than 25 million vehicles, including 1.2 million NEVs, last year. China’s EV incentives are part of a larger national goal to reduce pollution while also creating a foundation of Chinese manufactured, high quality vehicles.
The announcement, as reported by Reuters, comes at a time when the Tesla Shanghai factory, which manufactures Model 3 sedans, has returned to full force after a slight interruption due to the novel coronavirus. Tesla began delivering vehicles from its $2 billion Chinese Gigafactory at the end of 2019, less than a year after breaking ground. Since then, the Model 3 has soared in popularity with Chinese consumers. How will the decrease in NEV subsidies affect the success of the Model 3 in China?
It was just a month ago when we reported that Beijing had prompted local authorities to use multiple available resources to return the national workforce to full capacity. Indications were that officials in Lingang singled out Tesla as an example of their success in helping the area’s industry to recover. Chinese TV and internet channels were rife with footage of locally built Model 3 sedans being assembled amidst the epidemic.
There are stipulations, however, as to which alternative energy vehicles will come under the new subsidies announcement — passenger cars must cost less than the US equivalent of $42,376. The price to purchase a Model 3 in China is roughly $42,400 at current exchange rates.
Tesla has updated its Chinese website to include new Tesla Model 3 Long Range and Model 3 Performance variants, which will be produced at its Shanghai Gigafactory 3 factory.
China EV Incentives: Adapting to a Post-COVID-19 World
Originally, the Chinese plan had been to remove NEV subsidies by the end of 2020. However, in March of this year, following the post COVID-19 economic recession, the decision was made to extend them. The revision now includes consumers who buy new electric vehicles through 2022 and also contains provisions for tax exemptions on purchases for 2 years.
The full plan will play out to cut subsidies by 20% in 2021 and 30% in 2022. New commercial electric vehicles for public purposes will not see reduced subsidies.
China’s 2025 target for all-electric vehicles, plug-in hybrids, and hydrogen fuel cell vehicles is to elevate car ownership totals to one-fifth of all automobiles sold. This year it is anticipated that such alternative energy vehicles will combine to 5% of sales.
How China’s EV Incentives Now Affect Tesla
The new policy in all likelihood will eliminate premium electric vehicles like the Tesla Models S and X. China also plans to increase requirements for driving range and efficiency to qualify for the subsidies. Authorities will also support the sale of cars with swappable batteries, a technology that has been pursued by Chinese electric vehicle makers Nio and BAIC BluePark. When authorities buy vehicles for government use, they will prioritize buying NEVs.
Strong March sales of Tesla electric vehicles in China may have forecast a bright summer for Tesla. China is moving past the peak of the COVID-19 pandemic and restarting its economy, and Tesla registrations topped 11,280 units in March in the country, according to EV Volumes and CleanTechnica. If April follows at least a relatively similar pattern, the incentive program adaptation may have little effect on the Palo Alto all-electric carmaker.